Tips, tricks, and tax deductions for freelancers

Everything you need to know about deductions and extensions when filing your tax return as a freelancer.

April 15th. The day the Titanic hit an iceberg and Samuel Johnson published the first English language dictionary. This same day, Jackie Robinson broke the baseball color barrier with the Brooklyn Dodgers and Fidel Castro began a good will tour of the US.

But really most citizens of the United States know this day as Tax Day, the official deadline for filing individual tax returns. With a little knowledge and forethought, though, you can take at least some of the stress out of this hellish day.

Each year the amount of tax you pay depends on your overall earned income after deductions and personal exemptions. It’s your responsibility to inform both federal and state governments how much tax you underpaid during the year or how much you expect them to return if you overpaid.

What Deductions Can I Make

If you do go for Itemized Deductions, the federal government offers a variety of tax credits and deductions. The following are a few deductions a freelancer can consider:

Job-related equipment
If you buy something you need to do your work, it is potentially claimable. This might include a laptop for a travel writer or blogger, or a digital SLR and lenses for a travel photographer. A course such as MatadorU would also count, since you paid tuition to improve your travel writing skills. Same for any fees paid to professional organizations you belong to.

Gas mileage
If your home office is your base of operations, you can deduct gas mileage to client sites when using your personal car. Just remember to keep your receipts, and a good estimate of how far you’ve driven.

Higher Education
The American Opportunity Credit and Lifetime Learning Credits and Tuition Feeds & Deductions allow individuals and families to claim deductions on post-High School education that relates to your work. It’s important you keep all statements and receipts for expenses relating to undergraduate and graduate classes, as you might need to provide them when filing your taxes.
Note you couldn’t claim continuing education deductions associated with a course such as MatadorU, because the online school is not a registered college or university.

Damaged or stolen property
If your personal or business property is damaged or stolen during the year, you can claim these costs as a deduction. Note that unless it was a big-ticket item – like having your personal yacht stolen by pirates – the value probably won’t reach the Standard Federal Deduction.

Charitable donations
If you’ve donated money to any charities, such as to the Red Cross after the horrific earthquake in Haiti, the donations can be claimed as deductions on your federal taxes.

Adoption
If you successfully or unsuccessfully adopted a child, under 18 years old, during your travels around the world (whether on assignment or otherwise), you might be eligible to deduct expenses such as: court costs, attorney fees, travel (including meals and lodging), and other miscellaneous costs related to adoption.

Filing an Extension

Filing for an extension, using the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, will give you an additional six months to file your taxes, buying you time to look for loose change under the couch so you can make a partial payment on your estimated taxes. You will need to fill out Form 4868.

There are some drawbacks to filing for an extension. There is a monthly penalty if you are filing late, approximately 5% of the amount due. And because you are making a late payment, you will have to pay interest on the amount owed, as well as a penalty which ranges from 0.5 to 1% of the amount owed.

More Tax Tidbits

Keep a copy of your filed tax records for three years, in case the government wants to review prior payments.

The more income you earn, the higher your chance of being audited by the IRS, as they will want to make sure you are paying the appropriate amount of tax.

There is no statute of limitations for the government to track you down if you file a fraudulent tax return, or decide not to file a tax return at all.

Good tips. You can also deduct a percentage of food and entertainment costs associated with your work.

http://www.candicedoestheworld.com Candice

Oh man, we need a Canadian version now.

http://www.filelater.com Wes Masters

One thing to add about extensions: your best option is to file an extension online. That way you’re guaranteed to get a response from the IRS and can re-file if your request was rejected. If, on the other hand, you choose to send the IRS your request through the mail, you will never hear anything. That means it may never get to the IRS or it could be rejected. That will mean you’re accumulating late filing penalties without even knowing it.

http://www.deliciouschaos.com/ Nick Rowlands

Wow, you can deduct food too?

@ Candice – I hear you! I think I know more about US taxes now than British ones!

http://www.tourfolio.com Bryan @ Tourfolio.com

@ Candice – Good luck with that! Haha. I worked for a few weeks in Montreal in 2008 and received tax forms from them (after I already filed my US taxes), and was completely dumbfounded by the amount of ‘boxes’ that I had to check, especially the ones asking me if any part of my job involved cutting down trees or fishing…

http://matadortravel.com/travel-community/michelles Michelle

Seriously helpful article – thanks!

Peter Winterble

“Business entertainment” as relates to freelancing is usually only partially deductible, and it seems the IRS changes the rules every year. You need to check in the IRS instruction booklets or search irs.gov online to find out the amount of such expenses you can deduct. You normally can’t deduct, for example, friends of yours or friends of the person you are interviewing; only you and the person you are writing about, photographing, video-ing, or whatever.

When I was actively freelancing I usually avoided entertaining anyone since it was money I had to spend. If the subject wanted to pay, fine! I didn’t even interview people at coffee shops ’cause I didn’t want to be out the cash.

Also, if you’re going somewhere on vacation and can figure out a legitimate freelance job to do while you’re at your destination(s), a percentage of your trip can be deducted, but again, one has to be careful because the IRS is very wise to such things.

Overall, though, if you are not a high-end client of the IRS (making more than $100,000, for example), the agency usually won’t fuss with you because it costs them more money to get another two or three hundred tax bucks out of you than the amount they want to recover.

http://lonelygirltravels.com Lauren Quinn

I got my taxes done for the first time this year, as a freelancer. Amazing! I wrote off all my travels for the last year, plus my internet connection, conference fees, and other fun things.

Two things I learned:
1) you don’t have to choose between a standard deduction and itemized ones, like I thought. It’s not an either/or; I claimed my self-employment (freelancing) income, minus expenses, in addition to my W-2 and the good old standard deduction everyone gets.
2) You don’t necessarily have to save receipts. It’s better to, but I hadn’t planned ahead and didn’t have any for my longest and most expensive trip. As long as you have a record or log to prove your travels (such as a blog), you can use per diem rates, which are insanely higher than any backpacker budget. I cut the maximum per diem rate allowed in half for every destination I went to, and it worked out about right.

Amazing post really I like this post. E filing is the best option for file your Washington state taxes and federal tax return filing and gets fast tax refund from online for 2010 taxes. But I want to know latest rate structure.

http://www.rackmountsales.com/cat5_KVM_Switches_s/56.htm Cat5 KVM

Very interesting presentation I’ve got here with some useful tips. I find it
important to note that unless your business expenses exceed a certain
percentage of your adjusted gross income you can’t deduct a thing!